When things slow down, good things happen too

"Good things happen when the market slows down. Opt for the wait and watch policy before shutting down a company," he says.By Pankaj Jain

The year 2015 was phenomenal for Indian startups. We saw valuations rise across all stages, sectors and an unprecedented amount of capital flooded into Indian startups. Companies like Grofers and Oyo hovering in the stratosphere, appeared from thin air. There was a literal feeding frenzy in the food delivery space. Million dollar seed rounds seemed like the new normal. For those sitting out the million dollar rounds, it appeared they/us were the new dinosaurs.

Fast forward to 2016, the number of deals being funded is down significantly. It is almost impossible to go a week without reading an article about the drop in Flipkart's valuation by Wall Street banks and US mutual funds. No one is talking about hedge funds anymore. Some think the party is over. Some believe my views are "rose tinted".

In India, we tend to forget that "what goes up, must come down." The stock market, real estate and tech startups are not impervious to the laws of gravity. In the tech startup world, we have entered a global slowdown. Million dollar seed rounds are still happening, but there is quite a bit more prudence, and, more importantly, sanity, as many bets made in go-go days of 2015 have not played out as anticipated.

Back to basicsMarkets go through cycles. We recently saw an unprecedented up cycle complete in 2015. The frequency and amount of money pouring in, led to a great deal of FOMO (fear of missing out) amongst investors. 2016 is turning into a period of slow growth and smaller funding rounds for Indian startups. More investors are realising and talking about how copy-paste models from the West do not work in India. Does this take away from the long-term opportunity that disruptive ideas in India (and abroad) present? Not at all! It just means, founders and investors are refocusing on the basics of business and can't rely on unlimited funding for projects.

When things slow down, good things happen too. Bad ideas and businesses would not be able to raise capital and will be forced to shut down. Many of the founders and employees will return to the workforce and look for jobs in other startups that are doing well. Some will realise that they need to get down to basics and will pivot into a business that has a better shot at succeeding. Other startups that were having a hard time competing for talent in 2015 are now able to find it at more reasonable prices and can continue their growth stories.

The new normal?I am glad to see the market slow down and sanity return. Last year, I did twenty-four deals in India. A couple of them may have been million dollar seed rounds but there were a couple of accelerator investments. Some of the seed deals were at valuations higher than in saner markets. I could not know for sure whether a million dollar seed round had become the new normal. However, there were good deals relative to their revenue or user growth and other key metrics so I decided to do them. This year, we have been focusing more on accelerator investments as we believe we can add significant value to companies, especially those targeting US or global markets.

A million dollar seed round may be something to boast about but it is not the end goal. That should be to build enduring businesses solving real problems for every day Indians. I hope the current retrenchment allows time for reflection for both venture capitalists and founders to get back to basics and prepare for the next boom cycle which may be just twelve to eighteen months away.

(The author is a partner at 500 Startups, a California based seed fund and accelerator programme)

“A divorce could reshape the global wealth ranking. If the couple split their fortune equally, it could leave wife MacKenzie with $69 billion, making her world’s richest woman. It could also make Microsoft's Bill Gates the planet’s richest person once again,” reported Bloomberg. Amazon founder Bezos was dating Lauren Sanchez, a 49-year-old ex-news anchor.